The indexes are bound to put us to sleep for good one of these days. No breakouts. No breakdowns. Just tight ranges and a lack of conviction from both bulls and bears.
But as the CEO of MillerKnoll (MLKN) would tell me, I need to leave Pity City and focus on what I can control.
So, I'll start by saying something I never thought I would say: "Thank goodness for earnings season." If the reports don't create movement in the broader indexes, they at least will provide us with some catalysts to consider in individual names.
Netflix (NFLX) drew most of the after-hours attention on Tuesday. The stock dropped hard, roughly 10%, initially after its report. But by the end of the after-hours session, it retraced the entire drop and closed the session unchanged.
Netflix did beat analysts' estimates by two pennies on the bottom line and with subscriber growth while revenue came in just shy of expectations. The market initially reacted by hitting the sell button based on what I would consider the quality of revenue -- more subscribers but at a lower price per average subscriber. That's about the best measurement we have in terms of revenue "quality" for the company.
We also can say goodbye to its DVD-by-mail service. Honestly, I thought it ended years ago. It has been a footnote as far as the top line and bottom line go, so this is simply a cultural passing rather than a notable financial event.
The thing that will be notable in the current quarter is the crackdown on password sharing in the United States. If Netflix is able to convert more password sharers into even its low-priced offering compared to flat-out cancellations because a password can't be shared, it should come as a long-term win for the company.
The stark after-hours reversal creates an interesting technical setup. We now can feel comfortable that if $327.50 fails, Netflix shares could fall sharply again. That would put us below the 50-day exponential moving average (EMA), which has been significant for breakouts and breakdowns over the past several months.
The upside sits more muddled. The 10-day EMA and 21-day EMA are muddled here. Resistance really doesn't clear out until we're trading through $345 or, preferably, $350. A breakout should have power after the big reversal last night, but that's a lot to ask in a sideways market. For now, I'll be more focused on the potential for downside. However, a confirming close below support will be needed; otherwise, this stock becomes like everything else in the market -- just something to watch.
